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UK economy risks 'deepening downturn' as Brexit hits service sector - business live
UK economy risks 'deepening downturn' as Brexit hits service sector - business live
(32 minutes later)
Alpesh Paleja, the CBI’s principal economist, agrees that Britain’s services companies are now struggling:
Both the PMIs and @CBItweets growth indicator are consistent with activity slowing to a halt in Q1. The anecdote from both is the same: Brexit uncertainty holding back pipelines of work, corporate sending decisions and household confidence. https://t.co/ki6paCY11K
The UK’s service sector slump comes just as rival firms across the Channel are picking up.
Germany’s services economy, for example, grew at its fastest rate in six months. Its latest PMI index came in at a punchy 55.4 this morning, much stronger than the UK’s 48.9 [reminder: 50 points = stagnation].
This week’s PMI reports show that the services sector is underperforming the rest of the economy.
While the UK service sector contracted unexpectedly in March (with a PMI of just 48.9), manufacturing expanded much faster thanks to stockpiling (its PMI jumped to 55.1).
Construction suffered a small contraction, with a PMI of 49.7 last month.
Mix it all together....and you see that the UK’s private sector flatlined in March, in the worst quarter in over six years.
Worryingly, UK services companies have now reported falling new orders for three months running.
Worryingly, UK services companies have now reported falling new orders for three months running.
That hasn’t happened since 2009 -- when the world economy had plunged into recession.
That hasn’t happened since 2009 -- when the world economy had plunged into recession.
Markit says export demand was “particularly subdued”, which suggests the recent slowdown in the global economy is also hurting the UK.
Markit says export demand was “particularly subdued”, which suggests the recent slowdown in the global economy is also hurting the UK.
#UK #services #PMI shows new business contracted for 3rd month in a row in March; 1st time for this since Q1 2009. Businesses reported to be deferring or cancelling spending amid intense #Brexit uncertainties, #consumers limiting discretionary spending. Export demand fell
#UK #services #PMI shows new business contracted for 3rd month in a row in March; 1st time for this since Q1 2009. Businesses reported to be deferring or cancelling spending amid intense #Brexit uncertainties, #consumers limiting discretionary spending. Export demand fell
Some service sector companies will be doing well out of Brexit uncertainty -- such as lawyers, whose billable hours must have spiked as clients seek advice.
Some service sector companies will be doing well out of Brexit uncertainty -- such as lawyers, whose billable hours must have spiked as clients seek advice.
But many others are hunkering down, explains Chris Sood-Nicholls, managing director and head of global services at Lloyds Bank Commercial Banking,
But many others are hunkering down, explains Chris Sood-Nicholls, managing director and head of global services at Lloyds Bank Commercial Banking,
“Although there are still sub-sectors that are doing well in the current circumstances – such as some parts of professional services that thrive amid uncertainty – many others are opting to conserve cash, limit investment and keep a tight eye on costs until the fog lifts.
“Although there are still sub-sectors that are doing well in the current circumstances – such as some parts of professional services that thrive amid uncertainty – many others are opting to conserve cash, limit investment and keep a tight eye on costs until the fog lifts.
“Only when firms do get some greater clarity and can begin to plan properly again will we see how much of the current challenges are caused by underlying trends, such as slowing global growth, and how much is down to a temporary stall in confidence.”
“Only when firms do get some greater clarity and can begin to plan properly again will we see how much of the current challenges are caused by underlying trends, such as slowing global growth, and how much is down to a temporary stall in confidence.”
Simon Harvey of Monex Europe says the services reports shows that Brexit anxiety is hurting UK businesses:
Simon Harvey of Monex Europe says the services reports shows that Brexit anxiety is hurting UK businesses:
Services sector hindered by lack of investment due to Brexit and a tight labour market. Discounting the July 2016 result, this was the joint lowest services PMI of the decade. @graemewearden this doesn't make for good reading as Brexit continues to drag.
Services sector hindered by lack of investment due to Brexit and a tight labour market. Discounting the July 2016 result, this was the joint lowest services PMI of the decade. @graemewearden this doesn't make for good reading as Brexit continues to drag.
Lee Hardman of MUFG bank points out that the 2016 EU referendum result also spooked businesses, but activity did hold up OK.
Lee Hardman of MUFG bank points out that the 2016 EU referendum result also spooked businesses, but activity did hold up OK.
Sharp drop in UK services #PMI will heighten concerns #Brexit uncertainty is beginning to weigh more heavily on growth. Markit noted it was consistent with stagnating growth in Q1. One caveat is that sentiment also fell sharply around the referendum but activity did not. #GBP pic.twitter.com/SSIGEXEdvc
Sharp drop in UK services #PMI will heighten concerns #Brexit uncertainty is beginning to weigh more heavily on growth. Markit noted it was consistent with stagnating growth in Q1. One caveat is that sentiment also fell sharply around the referendum but activity did not. #GBP pic.twitter.com/SSIGEXEdvc
Reuters reports that:
Reuters reports that:
Britain’s economy looks likely to shrink over the coming months after Brexit worries caused the dominant services sector to contract for the first time in nearly three years.
Britain’s economy looks likely to shrink over the coming months after Brexit worries caused the dominant services sector to contract for the first time in nearly three years.
UK headed for downturn as Brexit worries hammer services sector: PMI https://t.co/jyt0O0mNYc pic.twitter.com/fBqiXt6Zhv
UK headed for downturn as Brexit worries hammer services sector: PMI https://t.co/jyt0O0mNYc pic.twitter.com/fBqiXt6Zhv
The PMI report also shows that some UK firms have been forced to slash prices to boost sales.
The PMI report also shows that some UK firms have been forced to slash prices to boost sales.
Good news for consumers, but a worrying sign for economic growth....
Good news for consumers, but a worrying sign for economic growth....
Stalling UK economic growth has been accompanied by the weakest rise in selling prices for goods and services since July 2016, according to the #PMI surveys. March saw an increased number of firms offering discounts to stimulate demand. Suggests #CPI will fall in coming months pic.twitter.com/7i7yg2P8vn
Stalling UK economic growth has been accompanied by the weakest rise in selling prices for goods and services since July 2016, according to the #PMI surveys. March saw an increased number of firms offering discounts to stimulate demand. Suggests #CPI will fall in coming months pic.twitter.com/7i7yg2P8vn
Duncan Brock of the Chartered Institute of Procurement & Supply is very alarmed by the contraction in the UK service sector last month:
Duncan Brock of the Chartered Institute of Procurement & Supply is very alarmed by the contraction in the UK service sector last month:
He blames the Brexit deadlock:
He blames the Brexit deadlock:
New orders fell for the third consecutive month and a drop in overall business activity for the first time in two and a half years has left the services sector facing a bleak near-term outlook.
New orders fell for the third consecutive month and a drop in overall business activity for the first time in two and a half years has left the services sector facing a bleak near-term outlook.
“Worried consumers fearful of rising living costs stayed away from discretionary spending and corporate clients held back on major decisions, preferring to defer big ticket projects until the Brexit deadlock is lifted.
“Worried consumers fearful of rising living costs stayed away from discretionary spending and corporate clients held back on major decisions, preferring to defer big ticket projects until the Brexit deadlock is lifted.
Unless the economy rebounds, Brock adds, Britain’s service sector firms could face “a fight for survival”.
Unless the economy rebounds, Brock adds, Britain’s service sector firms could face “a fight for survival”.
This chart explains why IHS Markit fears Britain’s economy could soon be shrinking.
This chart explains why IHS Markit fears Britain’s economy could soon be shrinking.
Aside from the brief dip seen after the EU referendum, today’s service sector PMI is the joint- weakest seen over the past decade.
Aside from the brief dip seen after the EU referendum, today’s service sector PMI is the joint- weakest seen over the past decade.
It equals the previous low point recorded in December 2012.
It equals the previous low point recorded in December 2012.
Newsflash: Britain’s service sector contracted last month, for the first time since the 2016 EU referendum.
Data firm Markit reports that service sector business activity shrank in March. They blame a lack of new work as corporate clients resisted signing up to new contracts due to “intense political uncertainty”.
Some firms also blamed Brexit concerns and worries about the economic outlook for holding back held back household spending.
This dragged Markit’s services PMI down to 48.9, down from 51.3 in February -- crucially below the 50-point mark separating expansion from contraction.
*U.K. MARCH SERVICES PMI FALLS TO 48.9 VS 51.3; EST. 50.9
Chris Williamson, Chief Business Economist at IHS Markit, says the survey shows that the UK economy is stalling -- and could fall into a “deepening downturn” in the months ahead.
“A drop in service sector activity indicates that UK GDP contracted in March, with the economy stalling over the first quarter as a whole and at risk of sliding into a deepening downturn in coming months. Both the services and construction sectors are now in decline and manufacturing is only expanding because of emergency stockpiling ahead of Brexit.
“The underlying picture of demand is even worse than the headline numbers suggest. Service sector order books have contracted at the steepest rate since the height of the global financial crisis in 2009 so far this year, with companies reporting that Brexit uncertainty has dampened demand and led to cancelled or deferred spending, exacerbating a headwind from slower global economic growth.
“A stalling of the economy in the first quarter will therefore likely turn into a downturn in the second quarter unless demand revives suddenly which, given the recent escalation of Brexit uncertainty, seems highly improbable. Such a scenario leaves the current consensus forecast for the UK economy to grow 1.3% in 2019 looking far too optimistic. IHS Markit currently expects to see just 0.8% growth in 2019, and even this modest performance is perhaps somewhat hopeful given the recent lack of any Brexit developments.”
More to follow!
Back in the markets, shares in fashion chain SuperDry have slumped by 12% after the company’s co-founder won a seat back on its board -- and the rest of the board resigned.
Julian Dunkerton won his surprise victory after persuading just enough fellow shareholders that he can turn the company around, following falling sales and profits.
But the news that the company’s CEO, CFO and chairman have all walked out in response, leaving Dunkerton as interim CEO, has worried the City.
Shares have fallen to 448p this morning, down from 500p last night -- and 550p before the shock boardroom clear out.
Michael Hewson of CMC Markets explains:
Against such a backdrop it is difficult to be optimistic about the group’s prospects until the dust settles, which means it will be incumbent on any new management to steady the shop quickly or risk further share price declines towards the five year lows we saw at the end of 2018 at 354p.
Since January last year the share price has fallen off a cliff from peaks of 2101p, a decline of over 75%, so it is clear that radical surgery is required. The big question is whether Julian Dunkerton is the man to do it.
Retail analyst Nick Bubb suggests Dunkerton should enlarge his current 18% stake in the firm.
This was not the scenario we envisaged when we made Superdry our “Tip for 2019”, but recovery hopes spring eternal (ahead of the pre-close update on May 9th) and we look forward to the Dunkerton camp putting their money where their mouth is and topping up their shareholdings.
Superdry: Julian Dunkerton wins battle to rejoin firm – and entire board resigns
Newsflash: The Eurozone service sector has grown at its fastest rate in four months.
It’s another sign that the global economy may have turned a corner, after several weak months.
Markit’s service sector PMI, just released, has risen to 53.3, from 52.8 in February. That’s the best reading since last November, showing that growth picked up.
Growth was led by Germany and Spain, where rates of growth strengthened since February, Markit says. Ireland also saw a marked rise in activity, whilst solid growth was recorded in Italy. France returned to marginal contraction.
Good news for Eurozone business morale. Services PMIs rebound in March: Spain 56.8 (prev 54.5, exp 55.0); Italy 53.1 (prev 50.4, exp 50.9); Germany 55.4 (prev 54.9, exp 54.9); France 49.1 (prev 48.7, exp 48.7); Eurozone 53.3 (prev 52.7, exp 52.7) @graemewearden
But, the eurozone dragged down by weaker growth at its factories last month.
So Markit’s composite PMI, tracking both sectors, fell to 51.6 from 51.9. That suggests the eurozone will only grow by 0.2% in the current quarter.
Chris Williamson, chief business economist at IHS Markit, says:
“The final eurozone PMI for March confirms the sluggish end to the first quarter, with business growth ebbing to one of the most lethargic rates seen since 2014.
“Only at the turn of the year, when business was hit by headwinds such as widespread ‘yellow vest’ protests in France and an auto sector struggling with new emissions regulations, has growth been slower over the past four years. The rebound from these temporary headwinds has clearly been disappointing and is already losing momentum, led by a deepening downturn in manufacturing. The goods producing sector reports that global growth worries have intensified, meaning customers continue to pull back on spending.
European stock markets have followed Asia’s lead, with strong gains in most markets.
Germany’s DAX is leading the charge, up 1.3%, with Italy’s FTSE MIB gaining 1%.
This is the fourth day of gains in a row, helping global stock markets to hit their highest levels in around six months.
Britain’s FTSE 100 is lagging, though, because the strength of the pound is weighing on exporters (Burberry, Unilever and Diageo are among the top fallers).
This rally suggests that a US-China trade deal may be ‘priced in’ already.
Paul Donovan of UBS Wealth Management explains:
US President Trump’s trade taxes hurt US listed companies. This caused the equity market to underperform the economy dramatically last year. Hopes of an end to those taxes have caused a remarkable equity rally this year. Now Chinese Vice Premier Liu arrives in Washington to try and do a deal. Markets already expect a deal.
In another encouraging sign, China’s private sector has expanded at its fastest rate in nine months.
The latest PMI data from China shows that manufacturers and service sector firms posted a stronger performance in March. Service companies led the way, with the fastest surge in new orders in 14 months.
Data firm Caixin says there are signs that overseas demand strengthened in March.
Chinese companies also saw an upturn in foreign client demand at the end of the first quarter. In the service sector, new export sales rose at the second-strongest rate since December 2017 amid reports of greater activity in international markets. Meanwhile, manufacturing firms signalled a fractional increase in new export orders, following a decline in February
Here’s the key points:
Manufacturers and service providers both signal stronger increases in activity and new work
Renewed rise in manufacturing payrolls leads to first expansion of composite employment for over a year
Overall business confidence edges up to seven-month high
Theresa May’s call for a Brexit compromise is “huge news”, says Jim Reid of Deutsche Bank.
He believes it could lower the change of a general election this year -- unless May’s administration is brought down by internal infighting over the plan.
Reid writes:
She is seemingly now prepared to back down on her prior red lines and also prepared to let Parliament decide on the outcome if she and Mr Corbyn can’t. Recall that the customs union option came within 3 votes of passage on Monday.
If parliament could muster the votes to pass that plan or an even softer outcome, PM May has now, for the first time, implied that she would negotiate that with the EU without calling for elections. The removal of that risk and that of hopes of a compromise supported the pound as it rallied +0.88% off its intraday lows after her words. In theory this is very positive news for the pound assuming the Conservative government survives the shrapnel from the internal party in-fighting that this will bring.
Theresa May calls for talks with Jeremy Corbyn in attempt to save Brexit
The pound has hit a one-week high, following Theresa May’s dramatic decision last night to reach out to the opposition Labour party for a Brexit compromise.
The move, with barely a week until Britain could crash out of the EU, has enraged May’s Conservative party. But it’s been received more positively in the City, as it could potentially lead to a softer Brexit.
Sterling has gained half a cent this morning to $1.318, on hopes that a no-deal Brexit can be avoided.
BlackRock’s Rupert Harrison argues that Theresa May had no choice but to turn to Jeremy Corbyn:
Some Tories clearly angry with Theresa May but she really had no other choice - the ERG have scuppered her deal and Parliament has the will and the power to prevent No Deal and secure a delay. There is no other magic option
As ever with Theresa May she waited to make her move until she really had no other options - one of the reasons we are where we are today!
Some political analysts scent a trap, though. Will Labour be forced to drop their push for a second referendum (May wants the deal done by 22 May) or left sharing the blame for the Brexit mess?
Former Nissan chairman Carlos Ghosn’s battle with the Japanese authorities has taken an intriguing twist today.
Ghosn has taken to Twitter to declare he’s preparing to reveal “the truth” about recent events and announced that a news conference would be held on 11 April.
The former chairman of Nissan is currently awaiting trial in Japan following his release on bail in Tokyo last month, almost four months after his arrest on charges of financial misconduct.
Posting his first tweet from a newly created and verified @carlosghosn Twitter account, he said:
“I’m getting ready to tell the truth about what’s happening. Press conference on Thursday, April 11.”
I'm getting ready to tell the truth about what's happening. Press conference on Thursday, April 11.
Ghosn, 65, is living under strict bail conditions at his residence in Tokyo until his trial begins, possibly not for several months.
The Tokyo district court set bail at 1 billion yen (£7m) after Ghosn’s newly appointed legal team said their client would agree to a list of limitations on his movements and communications.
Ghosn is accused of underreporting his income by tens of millions of dollars and transferring personal investment losses to Nissan. He faces up to 10 years in prison if convicted on all the charges. He has repeatedly denied the allegations.
The Financial Times has cheered the markets by reporting that the US and China are 90% of the way towards a trade deal.
They say:
Top US and Chinese officials have resolved most of the issues standing in the way of a deal to end their long-running trade dispute but are still haggling over how to implement and enforce the agreement, people briefed on the talks have said.
Liu He, China’s vice-premier, was preparing to meet Robert Lighthizer, the US trade representative, and Steven Mnuchin, the US Treasury secretary, for a potentially climactic negotiation session starting Wednesday in Washington. The talks are the latest in a series of meetings over the past four months.
Although an agreement was within reach, the two sides remain apart on two key issues — the fate of existing US levies on Chinese goods, which Beijing wants to see removed, and the terms of an enforcement mechanism demanded by Washington to ensure that China abides by the deal.
“We’re getting into the end-game stage,” said Myron Brilliant, executive vice-president for international affairs at the US Chamber of Commerce. “Ninety per cent of the deal is done, but the last 10 per cent is the hardest part, it’s the trickiest part and it will require trade-offs on both sides,” he told reporters on Tuesday.
US and China draw closer to final trade agreement https://t.co/xSmmn2KWRd
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Fresh optimism that the US and China could end their trade war is pushing markets higher this morning.
Asian stocks have hit their highest level in seven months today, with gains in Tokyo, Shanghai, Seoul and Hong Kong. Optimism is on the rise, shaking off worries about the global economy.
The rally comes as China’s Vice Premier Liu He heads to Washington with a group of trade negotiators, in another push for a deal.
White House economic adviser Larry Kudlow has fuelled optimism of a breakthrough, telling the US Chamber of Commerce that:
“We expect to make more headway. I can’t report any of the details, but it’s a larger, grander discussion than anything we’ve had before in U.S.-China trade relations, and there’s a certain amount of optimism.
The tit-for-tat tariffs imposed by China and America on each other’s goods have been blame for the slowdown in global growth recently, so investors are desperate for signs of détente.
President Trump will also be keen to announce a victory, especially as the US economy seems to have cooled of late.
However, hawkish members of the US administration will be demanding significant concessions from Beijing, on issues such as intellectual property protection. So there’s no guarantee of a breakthrough this week.
Oil is also benefitting from this morning’s wave of optimism, hitting its highest level since the start of 2019.
Yesterday, world markets hit a six-month high, with Britain’s FTSE 100 jumping over 1% to its highest level since October 2018. European markets are expected to push higher today.
